Falling markets present Isa fund bargains
It is impossible to say for sure when a market has peaked or bottomed, but share valuations are more attractive now than they have been for some time.
Brian Dennehy, managing director of research website Fund Expert says: “With markets falling, this is possibly the best opportunity for many years to buy attractively priced Isa funds.”
Jason Hollands, managing director of Tilney Bestinvest says: “The art of successful investing is to buy when markets are weak and sell when they are high, not the other way round.
“Markets usually overshoot on the way up and on the way down, so while the rout could run for a while, for long term investors this is a much better entry point than we’ve seen for some time.”
Remember the end of tax year deadline for using your Isa allowance is only a deadline to put your cash inside the account, you don’t have to invest straight away. Mr Hollands says you could drip feed new money in, either through regular savings or by phasing in your cash over a period of weeks and months, rather than heroically piling in with a single lump sum.
Read why most investors would be better off following a regular monthly savings strategy.
Moneywise Isa fund picks
Tracker funds are a good way to start investing because they are low cost and easy to understand.
The HSBC FTSE All Share Index fund aims to track the performance of the FTSE All Share Index, so the largest holdings will always be in the biggest companies listed on the London Stock Exchange and include the likes of HSBC, Royal Dutch Shell and BP.
The fund buys shares of each company in the index according to its relative weight in the index. It is very low cost with an annual charge of 0.07%.
If you want to concentrate your investments on medium and smaller companies, the HSBC FTSE 250 Index fund is a good option. It holds UK companies such as Rightmove and William Hill and has an annual charge of 0.18%.
Read about how sensible investing could have made you a million and why the FTSE 250 index fund might be your best option for the long term.
If you already have UK tracker funds then consider adding Tilney Bestinvest’s recommended funds Invesco Perpetual Global Targeted Returns, which aims to perform well in all market conditions or FundSmith Equity Fund, which invests in global brands.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.